REG - R.E.A.Hldgs PLC - Annual Financial Report <Origin Href="QuoteRef">REAH.L</Origin> - Part 2
25/04/2016 07:05
- Part 2: For the preceding part double click ID:nRSY1376Wa
Inability to supply product within the specifications that are, at any particular time, in demand with consequent loss of revenue Geological assessments ahead of commencement of extraction operations should have identified any material variations in quality
Environmental, social and governance practices
Failure by the stone operations to meet the expected standards Reputational and financial damage The area of the stone concession is relatively small and should not be difficult to supervise. The group is committed to international standards of best environmental
and social practice and, in particular, to proper management of waste water and reinstatement of quarried areas on completion of extraction operations
General
Currency
Strengthening of sterling or the Indonesian rupiah against the dollar Adverse exchange movements on those components of group costs and funding that arise in Indonesian rupiah or sterling and are not hedged against the dollar As respects costs and sterling denominated shareholder capital, the group considers that this risk is inherent in the group's business and structure and must simply be
accepted. As respects borrowings, where efficient the group seeks to borrow in dollars but, when borrowing in another currency, considers it better to accept the
resultant currency risk than to hedge that risk with hedging instruments
Funding
Bank debt repayment instalments and other debt maturities coincide with periods of adverse trading and negotiations with bankers and investors are not successful in rescheduling instalments, extending maturities or otherwise concluding satisfactory refinancing arrangements Inability to meet liabilities as they fall due The group maintains good relations with its bankers and other holders of debt who have generally been receptive to reasonable requests to moderate debt profiles when
circumstances require; moreover, the directors believe that the fundamental profitability of the group's business will facilitate divestment of assets or procurement of
additional equity capital should this prove necessary
Counterparty risk
Default by a supplier, customer or financial institution Loss of any prepayment, unpaid sales proceeds or deposit The group maintains strict controls over its financial exposures which include regular reviews of the creditworthiness of counterparties and limits on exposures to
counterparties. Export sales are made either against letters of credit or on the basis of cash against documents
Regulatory exposure
Failure to renegotiate the existing arrangements relating to the stone interests Limitation of the group's return from these interests to the loans advanced Current regulations in Indonesia limit foreign investment in mining concessions
New, and changes to, laws and regulations that affect the group (including, in particular, laws and regulations relating to land tenure, work permits for expatriate staff and taxation) Restriction on the group's ability to retain its current structure or to continue operating as currently Save as noted above regarding interests in stone, the directors are not aware of any specific changes that would adversely affect the group to a material extent; current
regulations restricting the size of oil palm growers in Indonesia will not impact the group for the foreseeable future
Breach of the various continuing conditions attaching to the group's land rights and the stone quarry concession (including conditions requiring utilisation of the rights and concessions) or failure to maintain all permits and licences required for the group's operations Civil sanctions and, in an extreme case, loss of the affected rights or concessions The group endeavours to ensure compliance with the continuing conditions attaching to its land rights and concessions and that activities are conducted within the terms
of the licences and permits that are held and that licences and permits are obtained and renewed as necessary
Failure by the group to meet the standards expected in relation to bribery and corruption Reputational damage and criminal sanctions The group has traditionally had, and continues to maintain, strong controls in this area because Indonesia, where all of the group's operations are located, has been
classified as relatively high risk by the International Transparency Corruption Perceptions Index
Country exposure
Deterioration in the political or economic situation in Indonesia Difficulties in maintaining operational standards particularly if there was a consequential deterioration in the security situation In the recent past, Indonesia has been stable and the Indonesian economy has continued to grow but, in the late 1990s Indonesia experienced severe economic turbulence and
there have been subsequent occasional instances of civil unrest, often attributed to ethnic tensions, in certain parts of Indonesia. The group has never, since the
inception of its East Kalimantan operations in 1989, been adversely affected by regional security problems
Introduction of exchange controls or other restrictions on foreign owned operations in Indonesia Restriction on the transfer of profits from Indonesia to the UK with potential consequential negative implications for the servicing of UK obligations and payment of dividends; loss of effective management control The directors are not aware of any circumstances that would lead them to believe that, under current political conditions, any Indonesian government authority would
impose exchange controls or otherwise seek to restrict the group's freedom to manage its operations
Mandatory reduction of foreign ownership of Indonesian plantation operations Forced divestment of interests in Indonesia at below market values with consequential loss of value The group accepts there is a significant possibility that foreign owners may be required over time to partially divest ownership of Indonesian oil palm operations but has
no reason to believe that such divestment would be at anything other than market value. The group aims to mitigate such risk by listing REA Kaltim on the Indonesia Stock
Exchange in Jakarta and/or by a transaction with a local investor
Miscellaneous relationships
Disputes with staff and employees Disruption of operations and consequent loss of revenues The group appreciates its material dependence upon its staff and employees and endeavours to manage this dependence in accordance with international employment standards
as detailed under "Employees" in "Sustainability" section of the annual report
Breakdown in relationships with the local shareholders in the company's Indonesian subsidiaries Reliance on the Indonesian courts for enforcement of the agreements governing its arrangements with local partners with the uncertainties that any juridical process involves and with any failure of enforcement likely to have a material negative impact on the value of the stone and coal operations because the concessions are at the moment legally owned by the group's local partners The group endeavours to maintain cordial relations with its local investors by seeking their support for decisions affecting their interests and responding constructively
to any concerns that they may have
VIABILITY STATEMENT
The group's business activities, together with the factors likely to affect
its future development, performance and position are described in the
"Strategic report" in the annual report which also provides (under the heading
"Finance") a description of the group's cash flow, liquidity and financing
adequacy, and treasury policies. In addition, the consolidated financial
statements include information as to the group's policy, objectives and
processes for managing capital, its financial risk management objectives,
details of financial instruments and hedging policies and exposures to credit
and liquidity risks. The "Risks and uncertainties" section of the Strategic
report describes the steps taken by the group to manage risk. In particular
there are risks associated with the group's local operating environment and
the group is materially dependent upon selling prices for crude palm oil
("CPO") and crude palm kernel oil over which it has no control.
As respects funding risk, the group has material indebtedness, in the form of
bank loans and listed notes. Some $15.4 million of bank term indebtedness
falls due for repayment during 2016 and a further $35.5 million of revolving
working capital lines fall due for renewal during the same period. Thereafter,
in the period to 31 December 2017, a further $22.6 million of bank term
indebtedness and $46.4 million of listed notes will be repayable. In view of
the material proportion of the group's indebtedness falling due in the period
to 31 December 2017, as described above, the directors have chosen this period
for their assessment of the long-term viability of the group.
The group is at an advanced stage in negotiations with its bankers in
Indonesia to extend the tenor and reduce nearer term repayments on bank term
loans totalling $62.1 million (being the bank loans in respect of which
repayments are due in 2016 and 2017). In addition, the group has initiated
discussions to refinance with longer term debt the listed notes falling due
for repayment in 2017. The directors have no reason to believe that the
revolving working capital facilities will not be rolled over when the existing
facilities expire.
In addition the group has, in recent months, been actively exploring the
possibility of raising additional permanent capital from a transaction with a
strategic investor. Discussions with a short list of potential strategic
investors are now at an advanced stage. If such discussions can be
successfully concluded, the outcome would be likely to resolve or
significantly reduce the group's requirement for additional liquidity. Should
funding be required pending completion of these discussions, the group will
seek to place for cash a limited number of ordinary shares and the necessary
authorities to permit further issues are being sought at the forthcoming
annual general meeting of the company. Flexibility also exists in making
decisions on the rate of extension planting which may be accelerated or scaled
back in the light of available finance.
The directors fully expect that the foregoing measures will refinance, or
permit the group to repay, the group indebtedness falling due for repayment
during 2016 and 2017. Moreover, as the benefits of recent improvements in
operational efficiencies start to flow through and CPO prices gradually
improve, the group's operations can be expected to generate increasing cash
flows going forward.
Based on the foregoing and after making enquiries, the directors therefore
have a reasonable expectation that the company and the group have adequate
resources to continue in operational existence for the period to 31 December
2017. Moreover, the directors consider that, taking into consideration the
maturity profile of the group's debt and given the operating resilience of the
business, the group will remain viable thereafter at least until 2020, being a
period of four years.
GOING CONCERN
The business risks are set out in the Strategic report with an indication of
those risks regarded by the directors to be potentially significant together
with mitigating and other relevant considerations for the management of risks.
The financing policies are described on page 36 of the strategic report and
the 2015 developments relating to capital structure are contained in the
'Finance' section of the strategic report under 'Capital Structure'. The
directors have set out their assessment of liquidity and financing adequacy in
the strategic report including the actions either in progress or contemplated
in order to ensure adequate liquidity for the next twelve months.
Accordingly, having made due enquiries, the directors reasonably expect that
the company and the group have adequate resources to continue in operational
existence for at least twelve months from the date of approval of the
financial statements, and therefore they continue to adopt the going concern
basis of accounting in preparing the financial statements.
DIRECTORS' CONFIRMATION OF RESPONSIBILITY
The directors are responsible for the preparation of the annual report.
To the best of the knowledge of each of the directors:
• the financial statements, prepared in accordance with the
International Financial Reporting Standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the company and
the undertakings included in the consolidation taken as a whole;
• the "Strategic report" section of the annual report includes a fair
review of the development and performance of the business and the position of
the company and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and uncertainties
that they face; and
• the annual report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the company's performance, business model and
strategy.
The current directors of the company and their respective functions are set
out in the "Board of directors" section of the annual report.
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
$'000 $'000
Revenue 90,515 125,865
Net loss arising from changes in fair value of agricultural produce inventory (1,147) (1,692)
Cost of sales (72,406) (77,914)
_______ _______
Gross profit 16,962 46,259
Net gain arising from changes in fair value of biological assets 13,060 3,571
Other operating income 2 2
Distribution costs (1,097) (1,325)
Administrative expenses (11,702) (16,391)
_______ _______
Operating profit 17,225 32,116
Investment revenues 259 398
Finance costs (5,951) (8,770)
_______ _______
Profit before tax 11,533 23,744
Tax (6,631) (1,763)
_______ _______
Profit for the year 4,902 21,981
_______ _______
Attributable to:
Ordinary shareholders (3,964) 14,153
Preference shareholders 8,461 8,140
Non-controlling interests 405 (312)
_______ _______
4,902 21,981
_______ _______
(Loss)/earnings per 25p ordinary share (11.2 cents) 40.3 cents
All operations for both years are continuing
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2015
2015 2014
$'000 $'000
Non-current assets
Goodwill 12,578 12,578
Biological assets 339,091 310,175
Property, plant and equipment 155,642 151,172
Prepaid operating lease rentals 34,295 33,879
Indonesian stone and coal interests 35,338 31,334
Deferred tax assets 15,787 8,909
Non-current receivables 1,395 2,749
_______ _______
Total non-current assets 594,126 550,796
_______ _______
Current assets
Inventories 11,190 16,180
Investments 2,158 -
Trade and other receivables 29,103 25,487
Cash and cash equivalents 15,758 16,224
_______ _______
Total current assets 58,209 57,891
_______ _______
Total assets 652,335 608,687
_______ _______
Current liabilities
Trade and other payables (27,025) (17,818)
Current tax liabilities (3,406) (2,581)
Bank loans (50,906) (40,326)
Sterling notes - (14,693)
Hedging instruments - (9,590)
Other loans and payables (93) (1,238)
_______ _______
Total current liabilities (81,430) (86,246)
_______ _______
Non-current liabilities
Bank loans (72,034) (60,638)
Sterling notes (55,853) (37,713)
US dollar notes (33,637) (33,472)
Deferred tax liabilities (92,168) (77,191)
Other loans and payables (5,558) (6,802)
_______ _______
Total non-current liabilities (259,250) (215,816)
_______ _______
Total liabilities (340,680) (302,062)
_______ _______
Net assets 311,655 306,625
_______ _______
Equity
Share capital 120,288 112,974
Share premium account 30,683 23,366
Translation reserve (46,282) (44,324)
Retained earnings 204,429 212,928
_______ _______
309,118 304,944
Non-controlling interests 2,537 1,681
_______ _______
Total equity 311,655 306,625
_______ _______
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
$'000 $'000
Profit for the year 4,902 21,981
_______ _______
Other comprehensive income
Items that may be reclassified to profit or loss:
Actuarial losses (489) (212)
Deferred tax on actuarial losses 122 42
_______ _______
(367) (170)
Items that will not be reclassified to profit or loss: instrument
Exchange differences on translation of foreign operations 3,575 (8,429)
Exchange differences on deferred tax (5,082) (3,383)
_______ _______
(1,874) (11,982)
_______ _______
Total comprehensive income for the year 3,028 9,999
_______ _______
Attributable to:
Ordinary shareholders (5,838) 2,171
Preference shareholders 8,461 8,140
Non-controlling interests 405 (312)
_______ _______
3,028 9,999
_______ _______
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
Share Share Translation Retained Sub Non- Total
capital premium reserve earnings total controlling Equity
interests
$'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 January 2014 101,574 25,161 (32,549) 203,225 297,411 2,030 299,441
Total comprehensive income - - (11,775) 22,123 10,348 (349) 9,999
Issue of new preferenceshares (cash) 8,946 1,618 - - 10,564 - 10,564
Issue of new preference shares (scrip) 3,420 (3,420) - - - - -
Purchase of treasury shares (966) 7 - - (959) - (959)
Dividends to preference shareholders - - - (8,140) (8,140) - (8,140)
Dividends to ordinary shareholders - - - (4,280) (4,280) - (4,280)
_____ _____ _____ _____ _____ _____ _____
At 31 December 2014 112,974 23,366 (44,324) 212,928 304,944 1,681 306,625
Total comprehensive income - - (1,958) 4,130 2,172 856 3,028
Issue of new preferenceshares (cash) 6,639 1,199 - - 7,838 - 7,838
Issue of new ordinary shares (cash) 675 6,118 - - 6,793 - 6,793
Dividends to preference shareholders - - - (8,461) (8,461) - (8,461)
Dividends to ordinary shareholders - - - (4,168) (4,168) - (4,168)
_____ _____ _____ _____ _____ _____ _____
At 31 December 2015 120,288 30,683 (46,282) 204,429 309,118 2,537 311,655
_____ _____ _____ _____ _____ _____ _____
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
$'000 $'000
Net cash from operating activities 20,063 24,392
_______ _______
Investing activities
Interest received 259 398
Proceeds from disposal of property, plant and equipment 2,512 -
Purchases of property, plant and equipment (15,785) (14,892)
Expenditure on biological assets * (16,563) (18,522)
Expenditure on prepaid operating lease rentals (1,250) (4,261)
Investment in Indonesian stone and coal interests (4,004) (897)
_______ _______
Net cash used in investing activities (34,831) (38,174)
_______ _______
Financing activities
Preference dividends paid (8,461) (8,140)
Ordinary dividends paid (4,168) (4,280)
Repayment of borrowings (9,620) (30,715)
Proceeds of issue of ordinary shares 6,793 -
Proceeds of issue of sterling notes, less costs of issue 4,086 -
Proceeds of issue of sterling notes, by exchange 39,921 -
Purchase of treasury shares, net of sales - (959)
Proceeds of issue of preference shares 7,838 10,564
Redemption of US dollar notes - (6,310)
Redemption of sterling notes, by exchange (39,921) -
Payment on termination of hedging contract (10,184) (41)
Purchase of sterling notes (2,158) -
New bank borrowings drawn 30,326 35,419
_______ _______
Net cash from/(used in) financing activities 14,452 (4,462)
_______ _______
Cash and cash equivalents
Net decrease in cash and cash equivalents (316) (18,244)
Cash and cash equivalents at beginning of year 16,224 34,574
Effect of exchange rate changes (150) (106)
_______ _______
Cash and cash equivalents at end of year 15,758 16,224
_______ _______
* Net of capitalised depreciation and amortisation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The accompanying financial statements and notes 1 to 14 below (together the
"accompanying financial information") have been extracted without material
adjustment from the financial statements of the group for the year ended 31
December 2015 (the "2015 financial statements "). The auditor has reported on
those accounts; the reports were unqualified and did not contain statements
under sections 498(2) or (3) of the Companies Act 2006. Copies of the 2015
financial statements will be filed in the near future with the Registrar of
Companies. The accompanying financial information does not constitute
statutory accounts within the meaning of section 434 of the Companies Act 2006
of the company.
Whilst the 2015 financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by the
European Union as at the date of authorisation of those accounts, the
accompanying financial information does not itself contain sufficient
information to comply with IFRS.
The 2015 financial statements and the accompanying financial information were
approved by the board of directors on 22 April 2016.
2. Revenue
2015 2014
$'000 $'000
Sales of goods 87,824 124,538
Revenue from services 2,691 1,327
_______ _______
90,515 125,865
Other operating income 2 2
Investment income 259 398
_______ _______
Total revenue 90,776 126,265
_______ _______
3. Segment information
In the table below, the group's sales of goods are analysed by geographical
destination and the carrying amount of net assets is analysed by geographical
area of asset location. The group operates in two segments: the cultivation
of oil palms and stone and coal operations. In 2015 and 2014, the latter did
not meet the quantitative thresholds set out in IFRS 8 "Operating segments"
and, accordingly, no analyses are provided by business segment.
2015 2014
$'m $'m
Sales by geographical location:
Indonesia 90.5 125.9
Rest of Asia - -
_______ _______
90.5 125.9
_______ _______
Carrying amount of net assets by geographical area of asset location:
UK, Continental Europe and Singapore 58.0 58.0
Indonesia 253.7 248.6
_______ _______
311.7 306.6
_______ _______
4. Agricultural produce inventory movement
The net loss arising from changes in fair value of agricultural produce
inventory represents the movement in the fair value of that inventory less the
amount of the movement in such inventory at historic cost (which is included
in cost of sales).
5. Administrative expenses
2015 2014
$'000 $'000
Net foreign exchange losses/(gains) 818 (391)
Net (credit)/charge for additional pension contributions (2,267) 314
Loss on disposal of fixed assets 49 484
Indonesian operations 11,556 13,794
Head office 6,160 5,587
_______ _______
16,316 19,788
Amount included as additions to biological assets (4,614) (3,397)
_______ _______
11,702 16,391
_______ _______
6. Finance costs
2015 2014
$'000 $'000
Interest on bank loans and overdrafts 8,130 4,869
Interest on US dollar notes 2,716 3,438
Interest on sterling notes 5,042 5,414
Change in value of sterling notes arising from exchange fluctuations (4,946) (3,350)
Movements relating to derivative financial instruments 1,685 2,404
Change in value of loans arising from exchange fluctuations (2,694) (354)
Other finance charges 887 (402)
_______ _______
10,820 12,019
Amount included as additions to biological assets (4,869) (3,249)
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